Digital Nomad
Digital Nomad Finances: What’s New for 2026 Regarding Housing Expense Limits and Withholding
New IRS guidance adjusts housing expense caps under section 911 and updates tax withholding tables—what nomads need to understand to manage tax liabilities abroad.
By NomadicTax Research Team • 5-8 min read • May 25, 2026
## New Housing Expense Limits Under Section 911
The IRS has published updated limits for housing expenses in **Notice 2026-25**, which apply to both U.S. citizens living abroad and foreign residents claiming the foreign earned income exclusion under IRC § 911. ([irs.gov](https://www.irs.gov/irb/2026-17_IRB?utm_source=openai))
- The housing limit varies by location: nomads should check the limits for the specific country or region in which they live. If the published limits are **higher** than previous notices, you **may use the higher amount**. ([irs.gov](https://www.irs.gov/irb/2026-17_IRB?utm_source=openai))
- These adjustments often reflect rising local housing costs and are published annually. If housing in your current location is growing expensive, this relief can help reduce taxable income significantly.
## Withholding Updates (Pub. 15-T, 2026)
Publication 15-T (2026) reflects changes under OBBB:
- Permanent extension of **higher standard deductions**, termination of personal exemptions (approved originally by Tax Cuts and Jobs Act but now permanent). ([irs.gov](https://www.irs.gov/publications/p15t?utm_source=openai))
- **Form W-4** and **W-4P** revisions—new checkboxes allow employees and pensioners to **claim exemption from federal income tax withholding** under certain conditions. ([irs.gov](https://www.irs.gov/publications/p15t?utm_source=openai))
- Changes also include treatment of “qualified tips”—for tax years between 2025-2028, employees or self-employed individuals may deduct up to **$25,000 in qualified tips** if working in occupations that customarily and regularly received tips before December 31, 2024. ([irs.gov](https://www.irs.gov/publications/p15t?utm_source=openai))
## What the Digital Nomad Should Do
- Identify your **tax home and foreign residence status** carefully; this determines eligibility for § 911 and housing expense limits.
- Keep records of **housing expenses** (rent, utilities, local taxes) in each location—ensure they're substantiated and meet IRS rules.
- Review your **withholding status** via W-4—if you're abroad, the new option to claim exemption or adjust withholding may reduce over-withholding.
- Track tips if your job involves tipping; ensure they meet “qualified tips” criteria and claim correctly in your returns.
## Example Scenario
Suppose Maria moves to Lisbon, Portugal in 2026 and works remotely. Under Notice 2026-25, if housing limits in Lisbon are adjusted upwards, she may deduct more for housing than under older limits—reducing her taxable earnings. Also, she may use the newly updated Form W-4 to adjust her withholding if eligible, avoiding a large tax refund—keeping cash flow smoother abroad.
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Keeping up with evolving guidance matters, especially for nomads. Adjust housing deductions, update your W-4 status, and maintain careful records to reduce surprises at tax time.